The Performance Imperative

Tom Peters

We act as if tradeoffs between incommensurate goals are a big deal. Fact is, they’re almost as routine as breathing. Do I answer today’s mail? Or put in the extra hour working on my column? The former comes under the important heading of “relationship management,” the latter “product development.” This evening, will
I read a trash novel (I’m pooped), a good novel (build intellectual muscle) or a history of money (to prepare for a speech to bankers)?

Life is lived in real time, and progress (or regression) is the product of dozens of daily tradeoffs like these. But in business life, it seems, people are undone by such choices. Managers tell me, time and again, that they must somehow “craft pay systems that precisely reflect the weight of competing corporate objectives.”

Forget it! Set reasonably high hurdles for incentive pay and folks figure their own path to salvation. They’re adults, for heaven’s sake.

3M, for example, says its top people must score well on both overall profitability and percentage of sales derived from new products. One computer company’s salespeople must rank in the top half in billings and customer satisfaction to get a nickel’s worth of bonus pay. And Domino’s Pizza orders teenage drivers to hustle like crazy—but will fire them for speeding

When I was at McKinsey & Co., the consulting firm, evaluations unmistakably reflected how well you performed on your current project assignment. On the other hand, there was a long-term requirement to become a recognized expert at some aspect of banking, technology management or whatever. No one told you how
to divvy up your time to achieve both objectives. It was simply clear that, over the long haul, you were going to be graded for short-term service excellence and long-term technical stature.

My advice: If you’ve got two overarching strategic goals, directly tie financial incentives (at least one-third of total compensation for managers, one-tenth at the front line) to above average performance on both.

And don’t fudge! Suppose a salesperson has really flogged the product and is up for a $40,000 year-end bonus. Yet he’s a bull in the china shop and has below-average customer satisfaction ratings. Tough! The deal is, good at both or no dough. Same story for the world-class schmooze, who’s adored by customers (top 5 percent in customer satisfaction), but just can’t close a sale.

(Sure, we’d like everyone to be a winner. I strongly urge you to make the overall incentive pot a big one, and to offer scads of assistance for those who don’t exceed all hurdles. But if we’re serious about emphasizing soft and hard, long-term and short-term strategic ends, then there must be an ouch-level penalty for those who don’t cut both varieties of mustard.)

This issue is racing up the corporate agenda. We’re routinely asking front-line people to do lots more than in the past. Before, we said, “Show up, we’ll tell you what to do,” then you did it. Now you must: (1) become darn good at something since expertise is the basis of all value added; (2) become pretty good at lots of things (everyone must be a well-rounded businessperson); (3) be a first-rate team player; and (4) exercise initiative daily in solving customer problems.

Performance must take a front-row seat. Even though we’ve laid off workers by the thousands in the past and fired a few outright (almost always for malingering), we’ve hardly used merit as the universal basis for evaluation. In fact, genuine merit-based ratings seldom cover more than 5 percent of the workforce. These days we must put every employee—for their and their firms’ good—on something like the up-or-out trajectory that marks most law firms. If you’re not constantly learning and taking initiatives, you’re a demonstrable drag on your team’s performance.

I can hear the labor leaders and politicians hooting. If we’re all on up-or-out paths, what do we do with the “outs”?

It’s a darned good question. The Japanese have essentially assigned theirs, by the millions, to menial jobs in unproductive industries (one big reason our productivity edge is enormous in sectors like retail). But that’s an ugly (and ultimately counterproductive) way to run an economy.

It is clear we can’t tolerate shoddy performance in leading-edge firms, especially those engaged in global competition. But as the future unfolds, almost every industry will find itself competing globally (our relatively lean retailers, such as Toys R Us, are making hay in Japan).

In short, there’s no place to hide. To survive economically as individuals and a society, we have little choice but to apply perform-or-else dogma to everyone and every enterprise.

(C) 1993 TPG Communications.

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